There was increased optimism today regarding trade negotiations with China and that combined with even more increased optimism over another Fed rate cut later this week pushed the Dow up 132 points.  The Dow is now less than 1% below its all-time high, the S&P achieved a new record for the second straight day and the Nasdaq closed just 5 points below its all-time high.  The oddsmakers have increased the likelihood of a Fed rate hike from last month’s 49% to 94% today and 78% of the 204 S&P 500 companies that have thus far reported have beaten estimates.  The Q3 outlook remains at a minus 2% but that’s a big improvement on the minus 3.2% that was in the forecast just two weeks ago.  Today’s Reuter’s report did not contain volume data but, per the Chicago Board Options Exchange (CBOE), volume was 6.6 billion, a tad above the 4-week average. 

MOn  OCTOBER 28, 2019 / 4:20 pm 

Trade optimism, Fed rate-cut expectation sends S&P 500 to record

Chuck Mikolajczak

DJ:  26,958.06  +152.53       NAS:  8,243.12  +57.32         S&P:  3,022.55  +12.26     10/25

DJ:  27,090.72  +132.66       NAS:  8,325.99  +82.87         S&P:  3,039.42  +16.87     10/28

NEW YORK (Reuters) - The S&P 500 hit a record high on Monday, while the Nasdaq fell just short of its lifetime high touched in late July as a more civil tone between the United States and China lifted hopes for a possible trade deal and investors looked toward a Federal Reserve rate cut later this week.  Microsoft Corp (MSFT.O) shares climbed 2.46%, making the stock among the biggest boosts to each of three major indexes after the technology giant won the Pentagon’s $10 billion cloud computing contract, beating out Amazon.com Inc (AMZN.O).

After rising as much as 0.71% to 3,044.08, the benchmark S&P closed up 0.56% at 3,039.34, topping the record high of 3,025.86 hit on July 26, while the Nasdaq ended the session less than 5 points below its closing high. The Dow Jones Industrial Average ended less than 1% away from its record closing level. 

President Donald Trump said on Monday he expected to sign a significant part of a trade deal with China ahead of schedule but did not elaborate on the timing, building on optimism from Friday when Washington said it was “close to finalizing” some parts of a trade deal.  Economic data shows the trade war between the world’s two largest economies has begun to take a toll on both countries, leading to worries about a global slowdown.

Global central banks have responded by easing monetary policy. The Federal Reserve is expected to follow that trend at its two-day policy meeting beginning on Tuesday, with high expectations that it will cut interest rates for a third time this year.  “After we finish earnings season and get through this Fed meeting, people will be looking to the trade deal,” said Walter Todd, chief investment officer at Greenwood Capital in Greenwood, South Carolina. “Importantly, as you watch the economic numbers come in here and globally between now and year end, you want to continue to see incremental positive sequential changes. You want to get some confirmation that in fact growth has bottomed and has started to improve.”

The Dow Jones Industrial Average .DJI rose 132.25 points, or 0.49%, to 27,090.31, the S&P 500 .SPX gained 16.79 points, or 0.56%, to 3,039.34 and the Nasdaq Composite .IXIC added 82.87 points, or 1.01%, to 8,325.99. 

The outlook for a quarter percentage point cut in U.S. borrowing costs have jumped to 94.1% from 49.2% last month, according to CME Group’s FedWatch tool.  The third-quarter earnings season has managed to ease some concerns related to the impact of trade tensions on corporate profits, with over 78% of the 204 S&P 500 companies that have reported so far surpassing profit expectations, according to Refinitiv data. Still, third-quarter earnings are expected to show a decline of 2%. 

Investors are waiting for earnings from heavyweights this week such as Apple Inc (AAPL.O), Starbucks (SBUX.O) and Merck & Co Inc (MRK.N).  Chipmakers, which have acted as a proxy for trade tensions with China, gained 1.75% on Monday. The technology .SPLRCT, healthcare .SPXHC and communication services .SPLRCL sectors gained more than 1% each.

Among other stocks, AT&T Inc (T.N) rose 4.28% after the U.S. wireless carrier said it would add two new board members and consider selling off up to $10 billion worth of non-core businesses next year.  Tiffany & Co (TIF.N) surged 31.63% after Louis Vuitton owner LVMH (LVMH.PA) made a $120 per share offer to buy the U.S. luxury jeweler. 

Advancing issues outnumbered declining ones on the NYSE by a 1.28-to-1 ratio; on Nasdaq, a 1.83-to-1 ratio favored advancers.  The S&P 500 posted 39 new 52-week highs and no new lows; the Nasdaq Composite recorded 115 new highs and 52 new lows. 

Note: There was no volume data in today’s report but, per BATS/CBOE, volume was 6.6 billion shares.